Let the ‘price out of the gate’ drive your next car negotiation
Bbuying a vehicle is more difficult than ever.
Buyers have a long tradition of negotiating discounts based on the number on the window sticker. In today’s tight market, however, many dealers say there is no room to negotiate the cost of a new or used car. In fact, buyers typically come to the dealership’s lot to find a large assortment of add-ons and fees attached to that asking price, inflating the final tally by thousands of dollars.
Some could be extras such as tinted windows or floor mats or a protective film. Some could be fees to cover the cost of advertising or preparing a car for sale. Some can be boldly labeled “Dealer Margin Added”.
What will the dealer negotiate on? What are the fees imposed by law? How to find the best offer?
Your most powerful trading strategy is not to trade these individual extras at all.
Instead, ask the question that reduces the number of moving parts to one: “What’s my release price?” “
Negotiate the exit price:
- Reduces confusion by allowing you to focus on one number.
- Reveals all costs, hidden charges and add-ons.
- Allows you to make apple-to-apple comparisons of offers from different retailers.
- Protects you from negotiating the monthly payment, a preferred tactic at dealerships.
- Avoid last minute surprises when revising the sales contract.
- Helps you set and stick to a budgeted price.
What is the price outside?
Simply put, the exterior price adds up all the parts of a car purchase and gives you a clear price. It represents the number on the check that you would have to write to bring the car home.
If you don’t know the outside price and instead negotiate on the purchase price of the car itself, or – worse yet – the monthly payment, you might be shocked at the total amount you have to pay. This price may have been inflated by a number of late additions to the contract.
Here is an overview of the costs included in a typical car offer:
- The negotiated price of the car.
- Destination charge, if the vehicle is new.
- Sales taxes and local taxes.
- Documentation fees (reseller’s fees for drafting sales contracts; in many states these are capped by law).
- Registration fees.
Any equity you have in your trade would reduce the outside cost.
Pretty simple, right?
But here’s the thing. Sometimes a reseller includes additional items in a sales contract, such as an extended warranty, anti-theft devices, reseller add-ons (such as fenders), or hidden charges that they consider to be part. of the deal, but you might not. The dealership can be quite outspoken and list “market fit” or similar language directly on the sticker.
It’s hard to keep track of all of these and know what’s negotiable. But, by asking for the outside price, you get all of these moving parts packed into one net figure.
How to use the external price
First, you need to estimate what you can afford to spend before you even go to the dealership.
Add the selling price, destination charges, sales taxes, title and registration charges, and document charges. If you have equity in your exchange, deduct it from that amount. If you owe more than the value of your transaction – you are upside down on the loan – add that to that amount.
This total represents your minimum exterior cost. In today’s market, you may need to decide how much more you are willing to pay. Whatever amount, use it for:
- Calculate car payments. While you don’t want to negotiate monthly payments at the dealership, you do want to get a feel for what that final number might be.
- Buy a car loan up front, using the total minus any down payment you have. Ideally, try a 20% down payment and a loan of no more than 60 months. A pre-approved loan in your pocket gives the dealer something to beat and takes away any worries you won’t qualify for.
- Compare dealer quotes, with your total as a benchmark.
Using the external price online
There are many tools that allow you to locate and trade a car without going to the dealership. In fact, the only real reason to go in person is to try the car.
- Search the online inventory of dealers in your area to find the car you want with the right set of options and in the color you like. If you can’t find what you want, ask which vehicles are coming from the factory.
- Contact the dealership’s internet manager by email. Check that the car is still on the lot or inbound and request a quote.
- If the dealer price is close to the MSRP, ask for an outside price with a cost breakdown.
- Continue to collect quotes from competing dealers.
- Compare the exit prices of different dealers to find your best deal.
- Your final sales contract will list each of the charges and extras, but the total should reflect the agreed release price.
Any dealer’s exit price is negotiable. They can stand firm because they know the vehicle can be sold for that price, or they can reduce the exit price by eliminating some extras or reducing their price.
Once you know the outside selling price, you can ask the dealership to make a monthly payment based on that amount. You will need to complete a loan application and tell the dealer how much down payment you want and how long you want to finance the loan.
Use the dealer’s financing if they can beat the rate you offered.
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Philip Reed writes for NerdWallet. Email: [email protected] Twitter: @AutoReed.
The article Let the “Price Out of the Door” Drive Your Next Car Negotiation originally appeared on NerdWallet.
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